In the wake of a historic housing crisis that has just recently begun showing signs of a turnaround, foreclosure counseling services are coming under strain. The foreclosure mess may be over for big banks, which recently settled with regulators for $8.5 billion.

Not so for homeowners, who continue to face a bureaucratic morass in dealing with lenders and servicers. According to a new report from the Philadelphia Fed, the city of Philadelphia’s already weak infrastructure for dealing with the fallout from the foreclosure crisis is fraying at the edges.

Perhaps the most interesting element of Fed policy at the current juncture is how they communicate the conditions that will lead to a slowing or a halt in asset purchases. The speed with which the Committee produced the numerical threshold rate guidance is a reminder that the Bernanke Fed can get their homework done early, but even so we do not look for any news on this front next week.

It’s that time again: Fed watchers are already parsing possible changes to the January policy statement, even before it is released. Goldman Sachs economists in particular have identified one passage ripe for some type of tweak — one that could signal the appetite for continued bond buys:

With Treasury purchases under the new regime already underway, the statement that Treasury purchases would ’initially’ occur at a pace of $45 billion per month will have to be adjusted. If ‘initially’ is replaced with another modifier such as ‘at the present time’ rather than deleted, it would suggest downside risks to the size of the Treasury program later this year.

In another sign of growing reticence about the Fed’s
bond-buying quantitative easing program within the central bank,
Lockhart, seen as a policy centrist who tends to fall in line
with Chairman Ben Bernanke, said the open-ended approach to bond
buys does not mean there are no constraints on the policy.

ATLANTA (Reuters) – The Federal Reserve’s unconventional monetary stimulus has its limits, and could pose threats to market functioning and financial stability if pushed too far, Atlanta Fed Bank President Dennis Lockhart said on Monday.

In another sign of growing reticence about the Fed’s bond-buying quantitative easing program within the central bank, Lockhart, seen as a policy centrist who tends to fall in line with Chairman Ben Bernanke, said the open-ended approach to bond buys does not mean there are no constraints on the policy.

It doesn’t sound sustainable but, at least in coming months, businesses look set to keep booming even as consumers come under pressure – in line with the recent trend. That’s because the economic hit from the partial deal on the fiscal cliff will hurt salaried workers disproportionately, says Steven Ricchiuto, chief economist at Mizuho.

He writes:

Although the worst of the fiscal cliff has been avoided, the compromise is not macroeconomic neutral. Our calculations, in fact, suggest that the drag created by the reversal of the payroll tax cut and the various tax hikes on upper income households will cut real GDP by upwards of 0.5% to 1% from our preliminary 1.5% to 2% forecast.

David Levy says he is bullish on the U.S. economy long term. But for now, the country is effectively stuck in a “contained depression,” the chairman of the Jerome Levy Forecasting Center told Reuters during a recent visit to our Washington bureau.

Still, things could have been much worse, says the third generation economist. For Levy, the interventions of a large and proactive federal government prevented a repeat of the 1930s.

Japan has crossed the monetary rubicon: the government is actively intervening in the affairs of the central bank, pressuring it to more aggressively tackle a prolonged bout of deflation and economic stagnation. The Bank of Japan is expected to discuss raising its inflation target from the current 1 percent level during its next rate decision on January 21-22.

Overnight, a Japanese newspaper reported the finance ministry and the central bank were considering signing a policy accord that would set as a common goal not just achieving 2 percent inflation but also steady job growth.

U.S. government bonds sold off last week following December Fed meeting minutes indicating growing doubts inside the central bank about the effectiveness of quantitative easing. Yields on benchmark 10-year notes hit an eight month high of 1.975 percent on Friday, in part as investors priced out some of the Fed asset purchases traders had been counting towards the end of 2013.

Other forces were also at work. Markets were relieved that the ‘fiscal cliff’-related expiration of Bush-era tax cuts had been circumvented, and encouraged by some moderately better U.S.economic data. The S&P 500 closed the first week of the year at its highest in five years.

Lacker, a vocal inflation hawk who dissented at every Fed policy meeting last year, held his ground on opposing the decision to purchase $85 billion per month in mortgage and Treasury bonds until the employment outlook improves.

About Pedro

"Pedro da Costa has been covering economics and financial markets since 2001. He is currently based in Washington and focuses on the Federal Reserve and macroeconomic policy. Da Costa earned a Master's in international relations at the University of California San Diego and studied sociology and political science as an undergraduate at the University of Chicago and the London School of Economics. He grew up in Rio de Janeiro, Brazil."

Joined Reuters:

2001

Languages:

English, Portuguese, Spanish, French

Awards:

2011 Deadline Club Award from the Society of Professional Journalists' New York Chapter